This year marked the eleventh year ofGood Money Week (GMW) – formerlyknown as National Ethical InvestmentWeek. The week offers an opportunity forthose in the investment community whomanage, work with or recommend funds forpeople who care about ethical, social andenvironmental issues to make some noise.

This year’s theme focused on women’sexperience of the financial services industry. Ithighlighted, for example, that ‘58% of womendon’t think financial institutions understandtheir needs’ and ‘83% women care aboutwhere their money is invested’, two quitepossibly connected findings.

More surprising, perhaps, was that after 10years of GMW convenors the UK SustainableInvestment and Finance Association (UKSIF)asking the same question, this year was thefirst time more survey respondents said they‘cared equally about making money andmaking a positive difference’ (24%) than thosewho were purely profit motivated (22%).

Other research published during ‘#GMW18’by the EIRIS Foundation showed that theonshore regulated sustainable and ethicalfund market is growing rapidly. Theirnotoriously difficult to calculate figure of £19 billion – roughly tallies with the recentInvestment Association figure of £15 billion(which is measured across a narrower cohortof funds and product areas).

Catering for millennials was another ever-popular topic that is highly relevant to thisarea. Millennials apparently care more, or Iwould suggest (perhaps more fairly) know

more about environmental issues than others,and so recognise the benefits of sustainableinvestment strategies more easily.

Sustainability and suitability This year I had the pleasure of being involvedin three quite different events – ranging fromthe admirably ethical Triodos Bank to theunashamedly mainstream Rayner SpencerMills - as well as organising our ‘SRI Servicesand Partners’ event. Despite varying content,the buzz of a rapidly growing market wasever-present at all three.

The aim of our event was to help financialservices intermediaries to understand theconnection between the (environmental andsocial) ‘sustainability agenda’ and (client)‘suitability’. Seven fund manager presenters –from Liontrust, Sarasin & Partners, Rathbones,Kames, M&G, Unicorn and JanusHenderson – collectively covered the fullrange of SRI strategies, from a very new‘impact investment’ fund to more familiar‘negative ethical screening’, in addition tostrategies that combine both of these as wellas stewardship and thematic strategies, indifferent measures. Also on the podium werefive discretionary fund managers/portfolioplanning firms, who brought to life the differentways such funds can be combined to meetdiverse client aims.

Explaining the relevance of issues like climatechange, supply chains, resource depletionand shifting towards a more circular economyfell to non-industry speakers. The keynotespeaker was Lord Deben (John Gummer),who spoke passionately about the role of theClimate Change Committee, the need forambitious Government target-setting and the

relevance of climate change toinvestors – both for financialreasons and because it “goesto the heart of our humanity”.*

Julia Dreblowprovides anoverview ofthe latestGood Money

Week, whichgenerated plenty oftalking points foradvisers and thefinancial servicesindustry

Investment Life & Pensions Moneyfacts®10 November 2018

Making some noiseGood Money Week

A further ‘issue’ speaker was Eleanor Spencerfrom the project SPOTT team at ZSL (ownersof London Zoo), who spoke about palm oil.Most people are presumably unaware thatNGOs and others often collaborate with, andprovide information to, investors in order tohelp deal with social and environmentalproblems. Project SPOTT’s area of focus ispalm oil – a major cause of deforestation,carbon emissions, loss of biodiversity anddamage to human health – and heading for asupermarket near you (and me).

A key point was that ZSL did not want fundmanagers to abdicate responsibility by sellingshares to less concerned investors. Theycalled on fund managers to be ‘responsibleowners’ and encourage companies to raisetheir standards through engagement, dialogueand voting.

Maria Varbeva-Daley from the BritishStandards Institute (BSI) helped highlight theGovernment’s position, as the BSI has beenasked by Government (particularly theDepartment for Business, Energy andIndustrial Strategy), to develop (voluntary)best practice standards for a sustainablefinance industry to help accelerate itsexpansion. Its work is now focused onscoping three possible standards on‘principles, process and product’ to reflect thedifferent aspects of the investment chain.

Climate change riskSince Good Money Week, research andconsultations have been published by thePrudential Regulation Authority (PRA)(Transition in thinking: The impact of climatechange on the UK banking sector) and theFinancial Conduct Authority’s (FCA’s)(DP18/8: Climate Change and GreenFinance). Both make it clear that climatechange presents a substantial and imminentrisk that needs to be ‘managed’.

The Bank of England has been active in thisarea for some years (search GovernorCarney’s 2015 ‘Tragedy of the Horizons’speech and ‘TCFD’). The FCA is newer to thisarea, which may be why its analysis andquestions are sound, but its preambleregarding ‘the potential to disrupt share valueswhile we transition towards a lower carboneconomy’ feels reticent. If asked, I would haveencouraged the FCA to be more bullish andproactive. Climate change is a major systemicthreat that needs to be addressed urgently.However, it was made possible byincreasingly sophisticated financial systems –banking and investment – funding advancesfrom the industrial revolution onwards. Thesolution to this problem must therefore befound within the same system – albeit onsignificantly shorter time horizons.

Going back a step, although some, like AlGore, have warned of climate change formany decades, most business leadersapparently did not understand its implicationsuntil 195 nations signed the Paris ClimateAgreement in 2015. We are now committed toholding global temperature increases at 1.5-2

That said, many recognise that we need themuscle of the big houses if we are to makerapid progress. So, this is not aboutterritorialism. Some have clearly recruited (orpromoted) well and have pockets ofexcellence, but until they demonstratecommitment alongside clearly constructiveand transparent strategies, eyebrows will beraised among the giants upon whoseshoulders this sector is being built. And rightlyso. We have seen ‘opportunity’ confused with‘opportunism’ before – for example with ill-conceived ideas of a separate SRI sector. Wedo not have time for more of the same.

The overall picture is however overwhelminglypositive. The increased alignment ofinternational agreements with nationalregulation will increasingly drive the‘materiality’ trustees and others seek. Fromcollective ESG, SRI, Impact and Ethical bondand equity funds through to green bonds andindividual social impact investments better-suited to wealthier investors, the opportunityto meet changing clients’ financial needs while‘doing good’ is growing.

The ground may be shifting, but diverseoptions will always be needed as long asclients have different aims, which is goodnews for everyone. No single formula forsuccess exists – as those working on‘taxonomies’ and ‘labelling’ projects arefinding out. The key lies in openness,transparency and a willingness to set out afund’s stall clearly and honestly.

UKSIF research has shone a light on some ofthe opportunities investment institutions havebeen missing. The FCA understands the needto instruct asset managers to explain theirobjectives properly, is asking questions – andis thankfully fearful of stifling innovation. Theseare welcome developments.

Future challengesOur next challenges will be to explain whyhugging ‘old industry’ benchmarks, focusingon charges ‘at any price’ and rearrangingdeck chairs have had their day. Time poor ‘Csuiters’ across all industries will have to provethey can work towards addressing climatechange – or face consequences. Investors –who of course have voting powers – willincreasingly demand this.

This is not about setting David against Goliath,generation against generation, or one sexagainst the other. We have seen enough ofthat. This is about recognising ‘the end of thebeginning’ (not the other way round) andworking together to grow ‘good’, forward-looking businesses through sound investmentstrategies. About being human. Aboutwinning.

* You can see Lord Deben’s presentation andthe others mentioned here on the FundEcoMarket YouTube channel.

Julia Dreblow is Director at SRI Servicesand Founder of the SRI fund toolwww.FundEcoMarket.co.uk

degrees Celsius (°C) above pre-industriallevels. As Lord Deben explained, we can nolonger argue that we are ‘unaware’. So, like itor not, the race is on to improve existingcompany behaviours (if they are to survive)and to finance solutions companies.

Academic research has pointed to thebenefits of environmental, social andgovernance (ESG) integration (bringing ESGissues into investment analysis) for some time.In the UK, the Department for Work andPensions (DWP) has been ‘first off the block’recognising this, presumably because of thelonger-term remit of pension schemes. TheDWP stated (in September 2018) that it willupdate regulation around fiduciary duty toclarify that trustees must consider ‘financiallymaterial’ ESG risks and opportunities, andalso makes specific reference to climatechange.

Pension funds have until next October toupdate their main and – where applicable –default statements of investment principles(SIP) to include:

1. How they take account of financially-material considerations, including (but notlimited to) those arising from ESGconsiderations, including climate change.

2. Their policies in relation to the stewardshipof investments, including engagement withinvestee firms and the exercise of the votingrights associated with the investment.

This is particularly pertinent following the 8October IPCC report, which states (to precis)that we have 12 years to prevent irreversibledamage. An excerpt from its ‘summary forpolicymakers’ reads: “The report finds thatlimiting global warming to 1.5°C would require“rapid and far-reaching” transitions in land,energy, industry, buildings, transport, andcities. Global net human-caused emissions ofcarbon dioxide (CO2) would need to fall byabout 45% from 2010 levels by 2030, reaching‘net zero’ around 2050. This means that anyremaining emissions would need to bebalanced by removing CO2 from the air.”

The magnitude of this task is eye-watering, soswift regulatory change should surprise no-one. This will take some adjustment and therewill be bumps along the way. A recent PRAsurvey, for example, found that 70% ofresponding banks recognised climate changeposed a financial risk, but only 10% weremanaging it strategically. A further 30%considered it to be a CSR issue!

It’s therefore no surprise that some SRI/ESGprofessionals fear greenwash, a practice akinto dressing mutton as lamb. In particular, thereis cynicism about investment houses, whountil recently, considered this area too niche(or worse) not to be of interest – but nowclaim unerring commitment and leadership. Arelated concern is ‘green’ passives andexchange-traded funds, as depending on theirstrategies, they risk misleading clients and/ordiverting capital away from more positivefirms.

11November 2018 Investment Life & Pensions Moneyfacts®

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